Auditors are “watchdogs, not bloodhounds” said the court in Re Kingston Cotton Mill Co. (No. 2) [1896] 2 Ch 279 CA. Even at the time this was a very limited view of what we can expect of auditors or their like. (It was also infelicitous; auditors are not and never were, even metaphorically, like “watchdogs”). Considering that Sherlock Holmes was an available “example” (1880 to 1907), it is surprising the judge did not feel more could be expected of the auditors of his day than he settled for.

The job of an auditor is to ascertain if the accounts provide “a true and fair view” of the company’s financial position. However, the auditor’s judgment on this is not, and should not be, absolute. After all, the auditor should not be the equivalent of an insurer where he pays if there is something wrong and loss accrues. In modern times the profession, as always, determines the liability of auditors. The profession has issued guidelines for auditors. Those guidelines now impose a higher standard on auditors than Re Kingston.

These guidelines were quoted in Moore Stephens (a firm) v Stone & Rolls Limited (in liquidation) [2009] UKHL 39

”Auditing Standard SAS 110 (issued January 1995) deals with fraud and error. It contains statements of auditing standards (SAS) and explanatory text in numbered paragraphs. SAS 110.1 states: “Auditors should plan and perform their audit procedures and evaluate and report the results thereof, recognising that fraud or error may materially affect the financial statements”. SAS 110.10 (para. 50) states that, on becoming aware of a suspected or actual instance of fraud, auditors
“should (a) consider whether the matter may be one that ought to be reported to a proper authority in the public interest; and where this is the case (b) except in the circumstances covered in SAS 110.12, discuss the matter with the board of directors, including any audit committee”.
SAS 110.12 (para. 52) provides that
“When a suspected or actual instance of fraud casts doubt on the integrity of the directors auditors should make a report direct to a proper authority in the public interest without delay and without informing the directors in advance.” “

The fact that the auditors in that case escaped by the skin of their teeth shows life is going to get difficult for the profession.

There are plenty of good ideas lying around to control corruption.

This blog has referred (July 2007) to one of them.

That post referred to the fact that the UK (and Ireland, consequently) formerly had that very remedy and allowed it to fall into disuse.

It is now proposed to revive it in the UK.

Another good idea that would have stopped Charles J. Haughey, deceased leader of Fianna Fail, from getting inexplicably rich, is to be found in the laws of many former UK dominions.

Hong Kong’s version is found in the Prevention of Bribery Ordinance. It provides;

“10. (1) Any person who, being or having been a prescribed
officer –

(a) maintains a standard of living above that which is
commensurate with his present or past official
emoluments; or

(b) is in control of pecuniary resources or property
disproportionate to his present or past official
emoluments,

shall, unless he gives a satisfactory explanation to the court as to
how he was able to maintain such a standard of living or how such
pecuniary resources or property came under his control, be guilty of
an offence.”

(The definition of “prescribed officer” is critical; we are not after the dog-catcher).

A False Claim Act is, however, the superior remedy; it applies to private corruption and to public corruption; it promotes the disclosure of wrongdoing by witnesses; it acts as a disincentive to crime (by making it dangerous to undertake).

There is a perception in the public that our corruption index is high. Only full and open investigation and punishment of offenses will reduce this perception.

It is not helped by the fact that the law relating to corruption in Ireland is controversial. It is strewn over several pieces of legislation and has been criticized on a regular basis by the OECD expressly for that reason.

Two weapons in the State’s armoury were brought in by Britain (still in force in the UK), (The Public Bodies Corrupt Practices Act 1889 and the Prevention of Corruption Act 1916) and are old. They are also inadequate. (The 1916 Act does not apply to employers: who, but employers, will fund the bribery?).

Ireland ratified the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions but, like many others, has dragged its heels in actually acting on its obligations.

In 2008 the OECD reported:

“In particular, the Working Group is disappointed that Ireland did not seize the opportunity of the Prevention of Corruption (Amendment) Bill 2008 to act upon the Phase 2 recommendations to consolidate and harmonise the two separate foreign bribery offences in the Prevention of Corruption (Amendment) Act 2001 and the Criminal Justice (Theft and Fraud Offences) Act 2001. The Group therefore recommends, as it did in 2007, that Ireland act on this issue as a matter of priority. It urges Ireland to pursue its declared intent to make changes to the 2008 Bill in order to achieve greater consistency between the two statutes, and consolidate at the first possible opportunity the corruption offences into a single piece of legislation. In addition, the Group continues to recommend that Ireland adopt on a high priority basis appropriate legislation to achieve effective corporate liability for foreign bribery.”

The Minister for Justice etc. welcomed this report, congratulating some civil servants, in effect, for meeting regularly to keep under review Ireland’s continuing default.

This is not academic stuff. See HERE.

And what of the, inadequate and insufficient, Prevention of Corruption (Amendment) Bill 2008?

It’s not even in sight.

There has been general astonishment at the findings of the High Court inspector into the “Fyffes” and “DCC” insider dealing transactions.

The inspector found that, Mr. Jim Flavin, having received legal advice, broke the law as to insider dealing, but, in the light of the advice, did so inadvertently.

Oddly, the judge who appointed the inspector to conduct the investigation said, in making the appointment:

The earlier proceedings were concerned only with the civil law and did not have to address culpability or responsibility of persons who may have advised or planned the transactions.”

How did that interesting idea fall by the wayside, as it appears to have done?

The UK mobile phone operator T-Mobile has reported the theft of its customers’ personal information. T-Mobile (and the UK Information Commissioner) say the employee(s) received substantial payments for the information.

If this happened in Ireland the employee would be guilty of an offence under The Public Bodies Corrupt Practices Act 1889, as extended by The Prevention of Corruption Act 1916.

The payment is a bribe.

In 1775 the East India company sent out Lord Pigot with instructions to restore the Rajah of Tanjore to his Madras territories. These had been annexed in 1773 by the Nawob of the Carnatic. In fact the Nawob was a puppet; the employees of the East India company were the real powers in Madras and Bengal. One of the principal persons in this regard was Paul Benfield (1740-1810). Benfield was nominally answerable to the Court of Directors of the East India company: in reality he was more powerful than his employers. The unlucky Lord Pigot was thrown into a dungeon by company troops (by order of Benfield) where he died in 1775. Benfield amassed one of the largest fortunes ever brought home from India. He was recalled in 1781 as a result of the Pigot scandal and successfully petitioned to return to his position in India. The vote in his favour in the Court of Proprietors of the East India company was 368 to 302. Edmund Burke had purchased a shareholding in the East India company in order to block Benfield’s reinstatement. One of his “Heads of Objections” read;
“That the immense Magnitude of the Sums alleged by him to be due to the said Paul Benfield, furnishes a just Cause to doubt, whether the Money (if really advanced as pretended) could be acquired by lawful means, considering Mr. Benfield’s Rank in the Service, the nature of his Trade, and the time of his residence in India.” Paul Benfield was a man of the world. The shareholders of the East India company were also beneficiaries of the extortion and theft practised in India and if appearances could be maintained, they would not and did not change the status quo.

1. McGarr Solicitors act for Jonathan O’Donnell. Jonathan O’Donnell was, apparently, arrested on the morning of 25th June 2009 in Broadhaven Bay, County Mayo by Gardai from Mayo Division.

2. He was taken to Ballina Garda Station and detained there.

3. Following application to the High Court later that day, the Court directed an inquiry into his detention under Article 40.4 of the Constitution of Ireland.

4. Formally, the Applicant is Jonathan O’Donnell; the Respondent is the Member in Charge of Ballina Garda Station.

5. The inquiry is returnable for Crt. 13 in the High Court, Four Courts, Dublin 7 at 10:45 a.m. on 26th June 2009.

Minister Dermot Ahern, Minister for Justice etc., please vigourously, without fear or favour, (asked or given), defend the interests of the following Persons (while,it must be said, doing your potential 2011 Presidential candidacy chances no harm);

Isis; Marduk; Aphrodite; Quetzallcoatl; Selene; Kibuka; Zeus; Hermes; Tekkeitserto; Mader-Akka; Ops; Nanook; Yhi; Ghidjja; Odin; Jupiter; Acuecucyoticihuati;

When you are finished, you may, at your discretion, help Michael O’Leary how to plan the operation of his pay toilets on Ryanair flights, assuming he is still engaged in that project when you are finished yours, if ever.

Misrepresentation is a form of fraud.

Fraud is a little like the “golden thread” [of innocence until proven guilty] running through [British] justice; it means more on some occasions than on others.

In Lazarus Estates Ltd v Beasley [1956] 1QB 702 at 712-713 Denning LJ stated:

No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. The court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved, it vitiates judgments, contracts and all transactions whatsoever…”

The leading case on deceit is Derry v Peek [1889] UKHL

The promoters of a company issued a prospectus stating that they had a licence to use steam power to run a tram. They did not; they expected to get it as a mere formality. They were refused and the company failed. The shareholders sued for deceit. The action failed, because it was not proved that the directors lacked honest belief in what they had said.

What is in issue in an action claiming fraud is the state of mind of the defendant. It is rare that a plaintiff can prove the malignant state of mind of a fraudster.

Under Section 45 of the Sale of Goods and Supply of Services Act 1980 a right of action was created which ameliorated the burden on plaintiffs complaining of fraudulent behaviour or its equivalent.

In effect the burden of proof was reversed; the defendant must prove that he had a reasonable belief that what he said was true;

45.—(1) Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.”

We have the Ryan report to consider; there is a lot to consider.

What are we to make of the judges of that era? (Strictly the era has not ended; the Ryan Commission had a time period to consider, that period only has ended).

A handy, if not good, place to begin on this, is with Jeremy Bentham.

Bentham said, of “the right to silence”;

If all the criminals of every class, had assembled and framed a system after their own wishes, is not this rule the very first which they would have established for their security? Innocence never takes advantage of it; innocence claims the right of speaking, as guilt invokes the privilege of silence.”

As a matter of fact he was wrong in saying that “innocence never takes advantage of it”, otherwise the practice and procedure of criminal trials in his day would have demonstrated case after case of defendants proving themselves to be innocent, something that did not happen.

He was wrong also to imply that invocation of the “privilege of silence” was a sign of guilt. Determination of guilt was and is the precise purpose of a trial. His opinion implied that the burden of proof should rest on the accused, something civilised nations currently do not admit as reasonable.

In reality, Bentham was on the comfortable side of a power relationship.

He was not the first and will not be the last such person.

Crimes are prosecuted because it suits the person in power to launch the prosecution. Whether that is a proper action depends on the circumstances of the prosecutor as much as the circumstances of the accused.

What, for instance, of Ireland’s political and administrative leaders during the years of the Bush administration in the USA?

(Actually, let us confine the inquiry to the period after the passing of the International Criminal Court Act 2006).

Under Section 8 of the Act of 2006:

Any person who does any act specified in paragraph 3 of Article 25 (crimes ancillary to genocide, crimes against humanity and war crimes) is guilty of an offence (in this Act referred to as an “ancillary offence”)”

Under Article 25 (3) (c) it is an offence for a person who;

(c) For the purpose of facilitating the commission of such a crime, aids, abets or otherwise assists in its commission or its attempted commission, including providing the means for its commission;

“War crimes” are defined in Article 8 and include;

Wilfully depriving a prisoner of war or other protected person of the rights of fair and regular trial;”

That is exactly what George W. Bush and Donald Rumsfeld did to the prisoners of Guantanamo, as was generally known.

Furthermore, they used Shannon airport to facilitate the transport of some of those prisoners to Guantanamo;

When will we have an investigation of the complicity (or ignorance, if such be the case) of our politicians, particularly our Ministers for Justice etc. during those years, in relation to those matters?